SCorp: Accrual to Cash Conundrum

[TaxBird]

I have an accrual basis books/cash basis tax SCorp 'dilemma'.

In 2007 the SCorp obtained 3rd party loans and the s/h contributed cash in order to make renovations. The combination of the two creates a large book/tax difference that I'm having a problem resolving. Seems I'm stuck in loop here.

Normally, I take the b/t liability difference against the associated expense. However, in this case, I'm all messed up.

As a result of the 'income', my client appears eligible to take just about all of her eligible SS179 on the improvements. However, SS179 is not included on page 1 but goes to the Sch K as it's own line item.

In order to resolve this, is it correct to add a line item to the Line 19 "Other Deductions' detail that just says "Accrual to Cash Difference" and leave it at that? Seems odd and not at all correct but that's all I can come up with to resolve this.

Can anyone help? I don't want to inadvertantly cause an audit because of a weird number.

[ChEAr$]

I just don't understand.

I have an accrual basis books/cash basis tax SCorp 'dilemma'.

In 2007 the SCorp obtained 3rd party loans and the s/h contributed cash in order to make renovations. The combination of the two creates a large book/tax difference that I'm having a problem resolving. Seems I'm stuck in loop here.

Normally, I take the b/t liability difference against the associated expense. However, in this case, I'm all messed up.

As a result of the 'income', my client appears eligible to take just about all of her eligible SS179 on the improvements. However, SS179 is not included on page 1 but goes to the Sch K as it's own line item.

In order to resolve this, is it correct to add a line item to the Line 19 "Other Deductions' detail that just says "Accrual to Cash Difference" and leave it at that? Seems odd and not at all correct but that's all I can come up with to resolve this.

Can anyone help? I don't want to inadvertantly cause an audit because of a weird number.

what means "b/t" liability difference against associated expense? book to tax?
Remember that borrowed money is not income, nor what it's used for necessarily
allowable expenses.

As for section 179, this flows through to shareholders on their K-1's and although
first determined on the corporate level for the maximum allowable, it's further limited
on each shareholder's own 1040.

If you maintained the corporate's accounting records during the year, though, any
reconciliation should be a snap. (As for me, if I don't do the books, I don't do the
1120S.)

One final thought or question. Did client do their own books using Quickbooks? (grin)

[TaxBird]

I'm confused, too!

what means "b/t" liability difference against associated expense? book to tax?
Remember that borrowed money is not income, nor what it's used for necessarily
allowable expenses.)

Yes, b/t = book/tax. Sorry for the abbreviation. I agree that borrowed $$ is not income. However, I still have to eliminate all o/s liabilities at year end in order order to come to 'true' cash basis, yes? The current changes leave me with what 'appears' to be income but is not. Hence my dilemma. Should I not be considering the change in shareholder loan nor the change in loan debt (on credit cards, by the way) when calc'g my accrual to cash adjustment?

As for section 179, this flows through to shareholders on their K-1's and although
first determined on the corporate level for the maximum allowable, it's further limited
on each shareholder's own 1040.)

Yes, on this I'm clear.

If you maintained the corporate's accounting records during the year, though, any
reconciliation should be a snap. (As for me, if I don't do the books, I don't do the
1120S.)

One final thought or question. Did client do their own books using Quickbooks? (grin)

Why YES, they did. How could you tell? I've got about 20 JEs on this bugger! This client pays me for the recon as well as the tax return so I'm fine with it.

[TaxBird]

Starting to see the light

Ok. Thanks to Chears clue, I realize the accrual to cash conversion should only include those amounts with P&L impact. That takes care of one of my problems - namely the shareholder loan.

Can I righly consider the change in credit card debt, although not used 'totally' in the renovation (but primarily) as a 'loan'. It was used to purchase an asset which in turn takes depreciation (if not SS179) which *does* have P&L impact, albiet indirect.

Then again, even the shareholder loan has an 'indirect impact', so maybe I've answered my own question there.

Thought check, anyone? Am I back on the path of correct thinking? That is, changes in shareholder loan and credit card debt (under these circumstances - change is primarily due to loan for asset acquisition) should not be included in my accrual to cash conversion.

[ChEAr$]

another wild guess

is that the credit card is not in name of the corporation.
therefore all these expenditures are from stockholder funds and form part of a loan
to the corporation.

You (we!) need to continually preach to our congregation...uh.... clients, the value of
separation between..... uh.... corporation and owners.

Dot the i's an cross the t's.